SPEAKER_00: all right everybody welcome to the all in podcast we're back thanks to freeberg and sax

SPEAKER_01: for moderating the show into the lowest ratings in its history hold on hold on please give the

SPEAKER_05: keyboard warriors that are their bot armies some respite here they tried their best it just didn't

SPEAKER_09: work they just it's it's okay i think the ratings the last episode must be a result of google uh down ranking us as a result of our honesty about not wanting to get more boosters you're on the brigadoon cause somebody at google some lower level functionary to push a button push a button to uh

SPEAKER_15: shadow ban i mean visibility filter us it's everything except the moderation skills

SPEAKER_22: no way it's the moderator turning it into fox sunday can't be that the reaction i got from our

SPEAKER_28: covid vaccine discussion was hey pretty fair and balanced like not in a in a joking way but like actually like yeah the warning on youtube was pretty benign actually yeah it's like if you want covet information click here thank you okay let's talk about the market data the fed raised 25

SPEAKER_00: basis points the market obviously has ripped since then the jobs data this morning was crazy we added 517 000 jobs more than 2x december and well above the estimates of 188 000 jobs the fed i think is starting to realize they can inf obviously impact inflation and slow down speculative assets but they're having a very hard time with the labor market uh obviously labor participation actually is growing we've talked about that many times here it's bumped up to 62.4 percent we all know it peaked at like maybe 69 percent during the 2000 time period wage growth though continuing to slow so that is some good news there and obviously risk on assets are ripping the last couple of days chamath what's your take on where we are with the market and the fed's action which people are starting to believe will be another 25 basis point hike and then maybe staying high for the rest of the year did you hear their comments you think dovish what's your take on the market i watched powell's speech and it was really

SPEAKER_34: amazing because in december he was extremely hawkish and he was basically like listen we're going to keep rates higher than you like and longer than you want and that was pretty clear and the markets reacted and then not but 35 40 days later he essentially said we have 225 basis point hikes left to go and he's going to try to stick the landing essentially and even though the rest of the language in his entire speech and the press conference if you read it in the absence of his body language so if you just

Chamath Palihapitiya: read the transcript would seem very hawkish as well but the reality was he basically capitulated and then the market essentially said okay we're at the end of this thing and we've talked about this before but markets tend to bottom six to nine months before it's clear that you could have done this and so we're a little bit off to the races in the short term it's compounded by a couple of other factors one is that at the end of last year so many people were tax loss harvesting which means if you had some gains somewhere else you sold some things that were losing money so that you could net the two together you saw a lot of stocks tesla was probably the poster child for this trade all the way down to like 108 dollars a share and it's effectively doubled in the last 30 days right so everybody tax loss harvested everybody degrossed nobody was really owning anything and then when powell basically said we're mostly done there's been so much systematic buying right now that nobody's really well positioned to me this is very similar and eerily reminiscent of the end of 2018 and beginning of 2019 and if you guys remember at the end of 2018 october november december the markets just fell and part of it was powell's going to raise rates inflation is getting out of control etc etc and then we got all this data that said china may be entering a real period of malaise and powell capitulated again trying to stick the landing and long story short he didn't that was a head fake and the markets just ripped higher then we went into the covet pandemic and all that stuff happened so i think we're about to replay a little bit of that at least in the next 30 to 90 days the pain trade is to go up so that's probably where we're going here's the

SPEAKER_00: fed fund rates chart from 2000 and into the 2008 recession and you see just you know to jamat's point in 2019 that little step up to two percent uh and then this dramatic step up uh that we've been on up uh to four and a half or so sax is this where the fed pauses you think they cut and and what

SPEAKER_43: overall effect is this going to have on venture capital on the startup market which is super important

SPEAKER_09: to us i think we're in the whipsaw economy here just a month ago sentiment was incredibly negative on

David Sacks: this show we were predicting for the year that we were looking at the fed funds rate going from four and a half percent to say five and a half percent 250 point increases the belief was that

SPEAKER_09: we were going to have a recession later this year i think that was pretty much consensus and now three weeks later you had a situation in which we got a couple of really good inflation reports so all of a sudden the consensus changed to we're not going to need to raise rates you know to five and a half percent maybe we only get one or two more quarter point rates and the market just ripped on the belief that inflation was in the rear view mirror the problem had been licked and now we can just kind of move forward and the fed seemed to confirm that just yesterday with the quarter point rate increase and now today we have this wild jobs report with over half a million new jobs the expectation was only a hundred thousand and so now all of a sudden people are wondering well wait a second does this mean that labor costs are gonna you know go back up that the economy is overheating and now the feds gonna have to raise more so i would say literally from week to week we're being whipsawed between expectations of whether inflation has been conquered or not whether the economy is gonna have a recession or not and i think probably where we're sitting at this moment is you'd have to say that the risks of inflation returning are slightly higher but the risks of a recession are slightly lower because with this kind of job support better chance of having a soft landing here it's very hard in

SPEAKER_48: other words sacks to have a recession if people are employed if people are employed especially when

SPEAKER_50: you're down to 3.4 yeah exactly so 50 year low right so i just think that we're in a highly volatile

SPEAKER_09: economy and it's very hard to predict the future i'd say that relative to where we were a month ago

David Sacks: you'd have to say that the odds of us having a soft landing this year are quite a bit better than

SPEAKER_00: they were just a few weeks ago all right freeberg when we look at this employment picture does seem people are going back to work seems maybe indicative of people blew through their savings we talked about this you've been harping on and on previous episodes about people doing personal debt buy now pay later is a possible basis here that people yolo'd for so long post pandemic coachella vacations etc that maybe they whip through their savings it seems like we've burned off a trillion in savings or something like that and the debt's going up so now people maybe need to go back to work and they're finally capitulating and taking jobs do you think that's what's actually happening here

SPEAKER_55: i don't know if i would classify that i mean there's obvious a lot of this stuff is on the margin the one challenge you know larry summers has been harping on since last spring all the way through the summer and the fall and you know in multiple kind of interviews and publications he's done he's the ex-us treasury secretary obviously brilliant economist um that the u.s needs to have a five to six percent jobless rate for five years in order for us to really get to the inflation rate target of two to three percent or below two percent and so you know the economists and the macro guys that are tracking their jobs report today are i think the indication is we're not there yet and that the implication of a tight job market is wages go up and wages go up inflation goes up and because companies need to charge more because they have to pay more to get talent and this obviously continues to support the escalatory spiral uh that drives inflation so that's the the you know kind of downside to the jobs report today that i think a lot of folks are watching the fed mentioned over and

SPEAKER_41: over again deflation so any impact there shamath you think we're going to see prices

SPEAKER_60: start to crater and what impact would that have on the market i think sax is right i think the the

SPEAKER_34: marginal risk here is is for this whipsawing so we have a period now which is disinflationary but the problem is if the stock market keeps going up and all of a sudden we have less restrictive

Chamath Palihapitiya: monetary conditions then we're going to be back at the same place we were before which is money sloshing around into all kinds of risky assets or more money you know there's still an enormous amount of money sitting on the sidelines that has to come into the market now if this thing keeps going higher so we're in a delicate moment and if we reignite inflation because all of a sudden more companies have more liquidity that they can tap right more money they can raise more money as a result that they can spend because we don't have this first inflationary cycle under control there could be a risk that that we reignite inflation and so then then they have to capitulate the fed has to capitulate again and start another hiking cycle so i think it's a complicated moment i think all of the smart money in wall street that i talked to up until this point they forecasted like this period would be choppy and the second half of the year would be really robust and like you needed to be super long and things were going to be incredible and when i talked to them this week they're like oh god we weren't positioned for this we had no risk going into this we're going to be forced buyers there's a bunch of companies that are whispering that they want to go public now oh really the big banks have been calling around trying to book build quietly for some ipos and so if they try to kind of crack this capital markets open i think there's again the marginal risk will be that

SPEAKER_68: we do whipsize when you say book build you mean trying to see if you'll get some early takers to buy equity in an ipo perhaps even in a company like stripe that's been sitting on the sideline so not

Chamath Palihapitiya: stripe they're in a complicated moment but when they call to book build they basically say hey listen xyz company quiet filed look at the s1 what do you think where's the price blah blah blah and they're trying to get an indication of whether you'd want to be in the ipo book so i think that there's a lot of those testing the waters that are now starting again would there be an appetite in your

SPEAKER_00: mind for an ipo in the second quarter of like a stripe type company putting you know i don't know what the other candidates are the lead candidates but stripe is one people talk about most the thing

Chamath Palihapitiya: that we have to think about is like most of the market are not people right most of the market are computers and algorithms and etfs it's an extremely formulaic buying model do you have components of an index those represent certain percentages you have to own those percentages to be relevant as that index and so it's this reinforced buying loop as well as a reinforced selling loop right so when things start moving those folks have to just systematically move money in all the humans know that so the humans tend to front run all the computers and they basically are the ones that sell into these guys and then that's what inflates these prices similarly on the way down humans try to front run it by being short into that stuff so we could see the capital markets open even if we don't it's actually the worst scenario because now you have all this money going into a fewer number of names that sort of explains facebook has doubled in in 30 to 60 days yeah it was about tesla tesla has doubled in 30 you know 30 60 days a lot of the tech stocks like high beta stocks that we are all you know helping to build those companies have just absolutely ripped 60 to 100 percent these are not healthy and normal moves and so the question is what happens if inflation somehow all of a sudden pokes itself back up right now it doesn't look like it is and paul was clear and it's true we're

SPEAKER_48: in a deflation he said deflation 11 times during his uh yeah and he's very clear about his use of

SPEAKER_09: language yeah that's why the market rips i mean basically that was all part of a narrative where inflation's on its way out we've licked that problem and that's what the market was pricing in and i think now the question is in light of today's jobs report is that actually true or not

SPEAKER_82: and i'm sorry disinflation not deflation disinflation yeah so i think you know one way

SPEAKER_09: one way to look at this is um jay how you showed the chart of the fed funds rate another chart is the yield curve can we just pull up the yield curve for a second this is the yield on u.s treasuries on you know rt bills and one way to look at this is as a prediction market of where the market thinks interest rates are going because the fed sets the rate for the feds funds rate which is the overnight rate of lending to banks but they do not set the rate of you know three months six months bonds 10 year bonds and so on the market does because the market trades those bonds and it imputes a yield that the market requires to want to hold those bonds so what's interesting is that if you view the yield curve as a again as a prediction market it tells you at any given time what the collective wisdom is of the market now this thing is fluctuating moving all the time so that collective wisdom is changing but where things are today it's pretty interesting it looks like what the market is saying is that within the next six months the rate peaks at 4.75 so nick if you just want to hold the mouse on the six month dot you'll see it's 4.76 so basically the market is predicting we get maybe one more quarter point roughly not much and then if you go to the two year it's at 4.09 so a little over four percent so what the market is actually predicting is that over the next two years we're actually gonna get a 50 basis point decrease from the fed and then if you go to say the five year or the 10 year we're at three and a half percent so the market's basically saying that long-term rates are going to stabilize at three and a half percent we're not going back to the abnormal zero interest rate policy or zerp that they have for 10 years three and a half percent will be the long-term stable you know cost of money but you can see that the market the prediction market thinks that the fed has done enough to combat inflation because the fed funds rate now basically is where the bond market thinks it should be and in fact the bond market thinks it's coming down over the next two years but coming down to what would be

SPEAKER_48: three and a half in a world that we've lived in for largely of the over the 14 years of this bull run the majority of that was at close to zero or zero and that's why we're never going back to the bubble

SPEAKER_09: of 2021 where sas companies were trading at 100 times arr we're going to go back to an environment more like a more normal one where valuations are more like the 2017 valuation something like that it's by the way it's three and a half percent is not a bad it's still a great deal still a great deal if

Chamath Palihapitiya: you got your mortgage at that if you listen to buffett buffett's teacher this guy ben graham

SPEAKER_34: in ben graham's book the way that he would look at a stock and obviously look things have changed but

Chamath Palihapitiya: the way that he would look at a stock is he would look at that risk-free rate he would double it and then the inverse of that is the maximum price to earnings ratio that he would pay for a stock right that's the trade-off is if you can get more than two times the risk-free rate then it's worth owning a company what that means is that if if you take three and a half percent as a terminal rate the right pe is around 14 for the s p 500 right now the s p 500 trades at 22 times pe which would mean that we are 50 overvalued now that again that's a benjamin graham model and i think the world has pretty cleanly moved away from it but there's probably some rooting in that intellectual framework that's still valuable and to your point david it just reinforces that man we need to start to learn a new regime here because when rates are not zero there's just a lot of excess that you can't support because the alternative trade-offs for investors are plentiful you know and plowing money into a

SPEAKER_38: money-losing startup becomes less attractive and to just give people some background that's the

SPEAKER_00: intelligent investor was that book i believe and he was talking about value investing which is hey what's the earning per share what's the ratio what's the pe and that's something that growth and momentum investing has been the opposite of and this is a could be i think you wrote a blog post about this tomorrow sort of the regime change if you look at the googles the facebook's the apples amazon's is is a little bit of an exception here those companies printed money they had profits they built up large cash reserves if we look at the next cohort of companies airbnbs coinbases ubers etc they focused on the top line growth uh much like the amazon which was a very obscure

SPEAKER_94: approach correct tromoth uh in in the history of this nick do you want to just throw up this chart

Chamath Palihapitiya: we did a little analysis over here and it was just basically looking back 60 years of company formation we looked at all of the 100 most valuable public company startups and we indexed that to the 10-year interest rate so what are we looking at here trim off with this chart so basically we went back from 1960 onwards so basically you know 63 years and what this shows you is the 100 most valuable public technology companies then the size of the circle here is their market cap and then it's overlaid on top of the 10-year interest rate as well as gray bars for recessions so what is this graphic meant to illustrate well it just was for us to study is there a correlation between the value of companies and what the interest rates were what the economy was doing at the time and to your point jason the trend is pretty starkly made on this chart which is that if you are a company that was founded in a period of austerity you had the ability in general to build a much larger company than that which was founded in a period of wealth and excess right so when you look at when rates were sort of approaching zero or were zero there was a lot of really successful companies they're listed here in the in the light gray on the right but none of those things really represent the success that these other companies had that's the first interesting takeaway the second interesting takeaway though from this has nothing to do with rates per se but it is that when rates intersect with the emergence of huge technology trends so in the case of the 1970s it was the pc revolution

SPEAKER_38: in the case of the late 1990s it was the internet revolution

Chamath Palihapitiya: those two things which required enormous progress in both physical infrastructures so atoms as well as software infrastructure bits when you put those two things together those also created big companies and so if you add that all up the point is that whenever you see huge tectonic shifts in technology combined with periods of austerity that's when the gargantuan dollars are made so in the 1970s companies like microsoft and apple from the get-go had to be profitable

SPEAKER_38: right and in the absence of one very important round of financing that amazon was able to close

Chamath Palihapitiya: the next big wad of companies were founded again in rising rates where they just had to get profitable or find a way to be positive free cash flow or have positive working capital faster than anybody else so these are like really interesting trends that i think just say that as rates creep back up and if we can intersect that with some improvements in technology over the next five to ten years that we've all talked about it could be a real boon for startups and startup

SPEAKER_00: investing it would mean people are a little more resilient a little more hardcore to use a term freeberg what are your thoughts on this analysis by social capital it's interesting i mean i think

SPEAKER_55: there's probably two ways you could interpret this one is in an era of excess capital all the capital gets competed away and so you pay more salaries you have uh it's harder to get high quality talent you make a lower margin etc etc it's much more kind of competitive on the ground and then another one is just obviously kind of like evolutionary fitness when there's less capital investors are more selective i think what might make this era a little bit different than the past is just the amount of termed dry powder sitting on the sidelines right now so the the the total vc capital raised last year i think was a record high that means there's a lot more cash that needs to kind of be deployed in the next 12 to 36 months than has ever been deployed in the history of venture if that holds true so that may be kind of a counterbalancing effect here where it may take three years before that effect plays out where there's more of a dearth of capital it's certainly the case that uh institutional investors endowments pension funds traditional family office lps and venture funds are making far fewer commitments this year to new funds as i think we all know and that tightening will play out in the venture funds that'll get raised for this vintage the next vintage and so on and so maybe that that kind of evolutionary fitness concept starts to play out later and sizing and sizing and sizing i think there's also this like you know we talked about this on our text stream but the venture business of the last 15 years everyone since 2008 everyone's been trained and all the younger people that have come up and are now partners and running the firms on an environment of momentum investing rather than fundamental investing and so there is also a question of how fit the investors are for a market space where valuations are flat or descending or the decision whether or not to invest is no longer driven by who else is investing and how much is the company growing and how much is their valuation going up but it's much more about kind of the fundamental performance of the the business does this match what you're seeing on the

SPEAKER_103: ground sacks are people being more dogmatic pragmatic are the capital allocators really sharpening the

SPEAKER_00: knives and looking at these businesses a different way is it actually hit the streets yes there's a

David Sacks: record amount of money venture capital has raised over the last you know couple of years but it's going to be deployed much more slowly and carefully over the next say three or four years than it was over the

SPEAKER_09: previous few years so divide that amount of money by three or four because the pace of deployment is going to go way down and so yeah i think people are going to be more careful again take longer to make decisions i think it's going to be much much harder for new funds to get started all of the you know hype around you know solo capitalists and you know all these you know seed funds and micro vcs and all this kind of stuff i think a lot of that's going to get washed away i think in hindsight a lot of that was a product of the bubble and yeah i think you're going to be in for a period of some retrenchment in vc and i think that's good i mean i think to the point of chamas study that you know that the counterintuitive finding in his study was that great companies are created during times when we're not in a bubble and capital is sloshing around everywhere but when you're in a environment of moderate capital availability and i think the point is that we all have to be under some stress right that's what evolution requires is you know if an ecosystem or an organism is not under stress they have no pressure to evolve and become fitter and compete and i think that's what makes our industry and our ecosystem very adaptive over time is that it's constantly you know it does face survival pressures but over

David Sacks: the last several years all the survival pressures were taken away because anybody could raise money

SPEAKER_105: and there was always another bridge available there was always some extension and there was no some

SPEAKER_00: convertible to be done right there was no reckoning you know a lot of these companies just seem to you know get another 12 months of runway another founders learned so many bad habits during that

SPEAKER_09: period of time and so much entitlement and excess built up in the system during that time and i think

David Sacks: now we're we're seeing that a lot of that is working its way out i mean just look at the facebook results

SPEAKER_09: the other day so facebook let's talk about facebook as an example because yeah here you have a company where the stock over the past year had been pounded it was like down over 50 percent and the market bucks a share yeah yeah the market did not like its answers around the capital investments it was making and then brad gersten our friend wrote that letter encouraging them to get much more efficient and then they did that and they basically started doing some riffs and basically just getting much more efficient and what they're doing and specifically taking out layers and layers of middle management i mean that was really the big thing so they kind of took a page out of elon's book in terms of what elon had done at twitter i mean not nearly to that extent because i don't think they needed to but they targeted this idea of we have too many layers in the company too many mid-level managers and the stock ripped just was it like up 20 25 percent yeah and they're up to

SPEAKER_00: i actually bought it based the day they had the layoffs i put in a buy order and it was closed at 94 and now it's at 193 and fedex of all places uh is laying off 10 of its offers officers and directors so the idea now is hey in the senior ranks what is the inefficiency there how do we get well more doers more people who actually are building or operating the companies to take the reins and get rid

SPEAKER_68: of this as you're saying middle management this waste that companies have let me tell you specifically

SPEAKER_09: the problem that builds up in these companies is that everybody wants to be a manager and so you you can't just come at this problem by saying we're going to increase the number of reports that each manager has from five to ten that doesn't work because let me tell you what happens is that every individual contributor who's a star thinks that their career advancement requires them to manage a team so what happens is you take that star ic and then you create a team around them so that person then hires five people to manage and those five people are not store yeah they stop working they just start managing well maybe you get like 20 more production out of that six person unit than you would have just out of the star but you're spending five times more money so it makes no sense and the problem is it cascades so you know that ic becomes a manager they hire five people then those five people one of them is a star and says well i want to be a manager on all the organizational pressure is to keep building

SPEAKER_25: more and more teams and more and more layers here's the quote from mark zuckerberg to illustrate your point from a recent all hands meeting i don't think you want a management structure that's just managers

SPEAKER_103: managing managers managing managers managing managers managing the people who are doing the work

SPEAKER_09: yes it's the problem of infinite delegation every like star builds a team around them to delegate the work but then they hire a team to delegate the work to and pretty soon the most junior interns in the company are doing all the work and all the best people are just managing so it's it's actually a huge problem and i think that i'd say that a lot of ceos don't quite understand the problem because they think that all they have to do is increase the number of reports that managers have it's not you also have to reduce the number of layers in the company and and just the ultimate example of this just to put a point on it was at twitter what we saw is that when elon went in to basically do a riff at twitter the first question he asked in the engineering department is who's checked in code and they looked at the code repository and over 50 of the engineering department had not checked in code in months and you want to know the reason for that is because the the engineers were told that if you want to be a manager in this company you don't code managers don't code only ic's code and no one wants to be an ice no one ambitious wants to be an ic they all want to get promoted so it all gets explain what an ic is just individual contributor yeah so the whole thing turned upside down because of

SPEAKER_124: this idea that again ambitious people want to be managers and managers don't do the real work

SPEAKER_41: yeah it's a cowboys who don't know how to ride horses it's like it's a dangerous precedent to set

SPEAKER_00: what are your takeaways uh chamath from what happened at facebook when you look at it and

SPEAKER_103: the pressure that was put on the ripping of the stock even though they're down two percent year over

SPEAKER_05: year in terms of advertising revenue there's a a guy on my team sent me this chart he did a pretty detailed technical analysis of facebook nick can you please put that image up there so basically this this shows this is really technical this this is the first time facebook mentioned the word metaverse in q2 of 21 on the earnings call they mentioned it 20 times and the gray line here is the stock price

Chamath Palihapitiya: so as they kept mentioning it the stock price just you know reacted but q q4 of 22 was the first time that the word efficiency exceeded the word metaverse and you saw and you saw the stock price rip up so what's happened at facebook is really interesting because i think it transitioned to what's generally called an ex-growth company which means that people are now looking at a business that has essentially gotten to its peak size and now what they're looking at is its ability to generate cash flow the cash flow generation or cash flow yield of the business was like three and a half percent but they're making enormous cuts both in capex as well as headcount over time they're getting their expenses under control and all of that should drive up their cash free cash flow yield and so i think why people got very excited is there are very few x growth stocks that you can own that can just compound and crunch ginormous amounts of money and these guys are in an incredible position to do it you know more than a hundred plus billion dollars of revenue and if you get these costs under control and get efficient get the employee base down to 30 or 40 000 over time this is a thing that just spits out just ginormous amounts

David Friedberg: of cash and so so it's value investing and warren buffett that means the earnings per share go way up

SPEAKER_94: yeah you know like like the facebook pe is quite modest actually now i actually put back in stock

Chamath Palihapitiya: based comp and its pe is about 11. so still reasonable if you go back to the to the ben graham analysis this is a company that perfectly meets that criteria of like you can buy it at a pe that's basically two times the risk-free rate and so i think it's an incredible stock now that you can own because if they keep grinding out all of these kind of free cash flow gains man they'll just they'll just have enormous amounts of money they already announced the 40 billion dollar buyback you know the thing to keep in mind is apple had a moment like this and when apple went x growth they did the brilliant thing which is they said we're going to borrow heavily and we're going to return cash i may have posted this in the group chat to you guys by 2025 apple will have exceeded one trillion dollars of

David Friedberg: cash distributions i mean that is just nuts is that include buybacks in cash distribution buybacks and

Chamath Palihapitiya: dividends and so facebook now you can credibly see a path where facebook could chunk out hundreds of billions of dollars of of total shareholder value returned over the next four or five years and so you know for value investors it's somewhat of a kind of a no-brainer i mean nothing's a no-brainer but

SPEAKER_00: yeah really really attractive value fundamentals right now i mean you did see warren buffett buying apple i think it's his largest position you're going to see him probably do the same with facebook there was an interesting mass extinction event tweet that went on that's related to all of this tom laverio a gp general partner at ivp which is a venture firm tweeted the following thread there is a mass extinction event coming for early and mid-stage companies late 23 and 24 but make the 2008 financial crisis look quaint for startups below i explain when how and why and we'll start and offer some detailed advice basically four and five four in five early stage startups he claims have less than 12 months of runway according to a q4 survey of 450 founders by january ventures he sees late 23 24 when this will all come home to roost mark souster from upfront ventures friend of the pod reply with the following precisely our internal analysis 5 000 seed 2.5 million raised or above a and b companies those are three different categories funded in the last four years we estimate 50 will go out of business loss ratios in the last seven years have been artificially low due to

SPEAKER_136: excess capital as we just discussed previously with the never-ending bridge we've talked about this

Chamath Palihapitiya: before if you look back over 40 years of venture capital the average top quartile fund distributes 1.6 or 1.7 x the capital they raise even though now we've gone through a period where people have shown these unbelievable markups right tvpis the total value of painting capital distributions have not really budged that much distributions are still modest they're below 2x and so we have to go through what's called mean reversion right we have to go back to the historic statistical average which means that a 50 to 60 mortality rate seems pretty reasonable by the way in the dot-com bubble

SPEAKER_139: that's what we went through you know in 2001 to 2005 we had a 50 mortality rate at the seed stage

SPEAKER_00: i mean you kind of expect 70 to go out series a maybe a little bit less freeberg what are you seeing on the streets you're investing in startups yeah look i i think that there's is there an opportunity by the way also in here so what are you seeing but is there an opportunity in this group of this cohort of companies which seem to be um upside down and or in yeah a tsunami right now this cohort of companies

SPEAKER_55: i think generally is overburdened with feature orientation and short-termism more than you would see in an era of uh reduced capital rather than excess capital and what i mean by that is a lot of companies built a business or built a product that allowed them to show traction in the market faster and typically those products that are easier kind of paths to market end up being features they don't end up being platforms so it's very hard to become a big business or to become a scaling business or to differentiate in a competitive market that's a generalized that's a very general statement but i think you know when you miss out on the platform play you start betting as an investor on a lot of the derivative plays that look like the real big company look like the platform i mean think about how many companies try to look like some iteration of stripe or try to look like some iteration of uber or try to look like some iteration of you know name your big kind of behemoth and as a result you get all these sort of feature-ish platform plays that have maybe a niche or some kind of you know narrow kind of market opportunity they got funded those those businesses obviously aren't going to have the same valuation multiples of the winners in the market and now uh and they burnt a lot of money to demonstrate growth because so much of investing over the last 15 years has been momentum investing and so they try to grow

SPEAKER_143: then they try to get a higher valuation investors plow more money in now the problem is that so many of these series bc d and e companies have a true market value they're not a valueless company but the true market value of them is probably less than the total preference stack of the capital that's gone in so they're so wait let me yeah yeah let me just make sure people understand i'll just describe it yeah so when investors invest they have preferred stock so they have a right to get their money back so they let's say a 1x liquidation preference they invest 100 million dollars the company is worth 300 so they own 25 of the company after they invest but they have a right to that 100 million dollars first before common shareholders get paid the problem now is that a lot of those companies may be worth less than the 100 they're not worth 400 anymore they're worth 100 and you can see this play out in the public markets with that that data set i shared with you guys a few weeks ago over two thirds of companies now that have gone public since 2020 are worth less than the capital that they have raised as in the venture market so if they were still private they would be worth less than their preference stack and that's where these companies start to unravel because now the investors have to totally recap the company the founders don't want to have all of their common wiped out now they own nothing and there ends up being a very ugly scenario that happens with the board at that point on how do we wind this thing down how do we recap it what's going to happen and that's usually where everyone starts to run for the hills the founders one or more of the founders

SPEAKER_34: leave and so on i have a question for you so you mentioned this earlier which i think was a really

SPEAKER_04: important point but we didn't really touch it do you think there's going to be a reckoning inside of venture firms about recalibrating general partners 100 i mean look

SPEAKER_143: and why sorry just explain why yeah so i think what's happened is over the last 15 years to become a successful venture investor you've gotten into the hot deals the deals were and hot deals the valuations are typically climbing up and you know when the valuations climb up that's an indicator that the company is doing well and you should invest that's been the model for operating in the last 15 years but the truth is that maybe just because the valuations have gone up and more money has gone in doesn't necessarily mean that that's a great business or as jama points out that you ultimately get a positive net return on that investment down the road and that windows now closed so the the the investors that have been trained this is such a generalization and i hate saying it because we have so many good smart friends that work in venture but generally speaking there are a lot of folks who have come up who have been trained on this momentum investing model and it's it's like it's like day trading the stocks are going up let's all put money into the stock going up instead of having a more fundamental approach to is there real cash generation potential and scalability and platform ability of this company and as a result you're going to have to see i think the junior partners that have come up and done

SPEAKER_85: well in this market can i build on your point well they're they've they've done well on paper but they haven't done well on distribution so maybe that chamath becomes the well so you decide who's

SPEAKER_28: a good venture capitalist which of these companies actually returned capital at a peak market well i

Chamath Palihapitiya: think freeberg is really on to something and he mentioned this before so i got curious about this and i went into pitch book and my team and i looked at all of the people the humans in our business that

SPEAKER_34: have generated more than a billion dollars in distributions on a given deal and there's 20

Chamath Palihapitiya: that have done that in our industry like there's people that have made hundreds of millions of dollars once or twice but there's 20 people that have made more than a billion dollars more than once okay and if you look not a single one came up through the ranks as a pure engineer or product manager right everybody 201 is extremely commercial in their background and their operating experience very few percentages of them were actually founders a huge percentage of them were trained in banks and other places so non-traditional quote unquote roles for what this current crop of gps look like because we went through a phase where if you were a vp of product or a vp of design or a vp of engineering at a well-known startup that was the most obvious onboarding into a venture firm but if you just look back at the data that cohort of people has actually never made money again according to pitch book that's fascinating and that's a really fascinating counterintuitive takeaway which is that and and by the way what's so interesting about that is pat grady i think had a tweet and it just sums it up so cleanly because he just hired somebody from co2 and the tweet was something to the effect of this guy is the most commercial guy we've ever seen something like that and i thought that was so interesting because that is exactly what our heuristical analysis of

David Friedberg: this data was as well commercial people in venture are the ones that make the money so you look at a fred wilson michael moritz danny riber phil gurley they were investment analysts i can share

SPEAKER_143: you the list markets before they became venture investors or mike moritz who was a who was a journalist

SPEAKER_158: yeah which is a journalist is just an analyst it's another if you're a good journalist it's another

Chamath Palihapitiya: word for analyst yeah it was really really interesting looking at that list so like you know there are people in there like jim getz alfred lynn danny reimer jan hammer fenton so if you look at all of these folks that are just tier one people and we know all of them the one common thread amongst all those folks is that unbelievably commercial and so jason in a moment like this where you have to really hold the entrepreneur's feet to the fire or be their partner to make extremely hard decisions you have to have the ability to be respected by them in those moments where you can force a very difficult decision and then separately if you have to basically force liquidity so that you prioritize your limited partners how do you do that while still managing the relationship with the entrepreneur how do you know that you just need to cut your losses and get out these are very difficult trade-offs that i think folks haven't been trained in doing to david's point so it'll be really

SPEAKER_00: interesting few years to see how these organizations i think this goes this goes to sax's point about hey the ecosystem if it's hard if it's cantankerous if there's sand in the oyster it could make the pearl if you have a con you know a congenial relationship with you know your product manager vc and everybody's champagne and caviar and and and high-fiving maybe that's not as good as having a bill gurley a michael moritz and having a foil maybe who is putting pressure on the management team hey we need

SPEAKER_100: to hit these numbers freeberg and then sex yeah look i think one one counter argument here may be that

SPEAKER_143: there is this friggin tidal wave of ai companies and there is this incredible amount of lubricant in the dry powder that's sitting on the side of the of the market right now that all these venture funds raised in the last two years that is going to lubricate all these ai companies into every vertical in every market so every company's wrapped up in an ai cloak like a magic invisibility cloak every ai company's got an ai hat and a badge and a tattoo now or every company's being rewritten as an ai company and the money wants to find its way into ai and it wants to rewrite industry with every industry with ai so i think similar to what we saw with mobile and the social web you know going back 10 or 15 years we're seeing kind of this ai rapper and this ai technology enabler rewrite the possibility of every vertical and the vcs have capital more capital than they had 15 years ago or 10 years ago or even seven years ago so there is this counter narrative which may be that the game the game goes on the band continues to march on the current crop dies out but there's immediately a new crop waiting right behind it or what happens is the herd dies and everyone runs to the back of the right and gets recapitalized because i can tell you every startup i know that's not going well everyone's talking about leaving to go do an ai company and the venture

SPEAKER_04: firms are ready to write money i think you're i think you're right about that i think the question

Chamath Palihapitiya: is the actual person making the check will they be more or less likely and at least what history would tell you is that we've hired an entire generation of people that and this is clear do not map to the people in our industry that have actually generated returns so you're right they may

SPEAKER_159: take this money and misallocate it into these companies that are just you know rebranding themselves

Chamath Palihapitiya: but that just goes and further proves that there is a type of person that hasn't been recruited into these venture firms yet that was the first generation that made all the money i think it's always been the

David Sacks: case that there is some difference between the background of the vcs and the backgrounds of the founders i mean you guys mentioned girly and maritz like we said maritz was a journalist who had written a book about apple he wasn't technical per se and girly was a investment analyst on wall street before he then made the transition into vc and as we both know they're like legendary vcs

SPEAKER_09: you know i think the what you want to see in a vc i think the background matters a little bit less than you know like how curious are they how good are they about learning a new area how good are they at being like a heat-seeking missile i mean basically just like zeroing in on like what is the hot space and specifically what is the best company within that space and somehow figuring that out being able to assess a founder you know that's like a very subjective thing so i think there's lots of qualifications that you want to see in a vc now at the same time i do think that if ai is the next wave and the next sort of platform opportunity as we all think it is i do think that places more of an emphasis on technical skills and i was i was literally just having this conversation at craft that gee maybe the next hire we should make a craft should be someone who's really deep technically

David Sacks: so they can you know help go deeper on technical due diligence of ai companies they've never made money

SPEAKER_167: what's that they've never made money in the history of our business who those people that archetype of hire has never done it on behalf of well in biotech and life sciences they have

SPEAKER_59: the best investors usually he's saying a technical hire who worked in the trenches at a

SPEAKER_28: company is not as fit no has not in the past has not in the past gotten dpi whereas somebody who

SPEAKER_85: is more commercial able to analyze a business commercial the ideal person is going to be able to

SPEAKER_09: get returns right right so look i think you know the ideal person would be someone who's fundamentally a great investor but also has some technical background and some technical chops we also have a team approach at craft so if you have someone who's very technical they can just diligence

SPEAKER_112: the technical aspects of the deal somebody else can be responsible for you know making an assessment

SPEAKER_04: of the founders how we've solved this is we have a group of third-party individuals that we work with

Chamath Palihapitiya: that we keep on retainer that we compensate and whenever we need to do deep technical diligence we partner with them to do that work with us and what it allows us to do is get the best of their technical thinking without also putting them in a position of trying to adjudicate whether this company is good or not what i'm trying to understand is what is this technical edge and can i understand the boundaries of that but i i still keep the investment decision to myself and my partners because otherwise the difficulty is in my experience deeply deeply technical people are extremely good at diligence but generally are poor at making investment decisions because there's a part of their brain that flips on which is like i could do it better or i could do it this way or i could do it that way and i think like that anchoring bias can be very dangerous and you you almost want to be a little dumbed down from that depth of knowledge because you either find everything that is like not worth doing and then you can miss a market or you miss the thing that is good enough because you're like oh well i would have done x y and z in a different way so we kind of like use them but we keep them at arm's length so that they never feel the pressure of having to actually decide on our behalf how the money should be spent yeah i mean that's interesting yeah the number one thing we're doing

SPEAKER_00: at this early stage is tracing our founders i know this sounds crazy on accounting best practices and pricing best practices and we literally have founders who have never made a plan i'm talking about at the seed stage who don't know accounting and so we are running four seed stage startups and i'm kicking myself that we didn't do it two years ago or three years ago but better late than never on how to just maintain their books and understand operations and the the operational lack of discipline in the market i'm seeing series a and series b companies that literally don't understand their own accounting and so when we start talking to their accountants there is a huge gap between what the accountants think of this business and what the founders think of these businesses and founders think they have more revenue than they have or less revenue they really don't even know how to calculate their runway in an honest way and so there is back to your point chamath about on the on the venture side of the business a lot of product focus a lot of operational focus there's not enough focus on just the bottom line the reason that happened it's is what friedberg said before

SPEAKER_38: which is like somebody would build something there was a little bit of momentum and you'd have to go and present these bona fides to these entrepreneurs to get into the deal and so vent what venture firms thought was the right bona fide to present is oh i built xyz product at this other company right and

Chamath Palihapitiya: they thought that that edge could get you into a deal maybe but it could turn out that that was the wrong company to be in in the first place and so you just missed an entire generation of value creation

SPEAKER_94: because it happened sort of off piste off the trail like yeah you really do need to understand

SPEAKER_00: fundamentally because we're talking about public markets here the facebook analogy what is the ultimate earnings what is the ultimate cash that is going to get thrown off this business and and that's what the whole industry needs to i think pivot to and just that needs to be the operating

SPEAKER_05: principle do you guys know how much money facebook amazon google and microsoft raised combined total before they went public that's very small i mean google is minuscule less than a quarter

SPEAKER_33: billion dollars unbelievable yeah the inefficiency is extraordinary and then on top of this

David Friedberg: inefficiency i don't know if you're seeing this they were all profitable when they went public

SPEAKER_00: on top of all this inefficiency is a dependence on venture debt i don't know if you're seeing this sax but the amount of focus on adding debt to unprofitable companies over the last five years has been just extraordinary i don't understand what i've never understood the venture debt model or really how it

David Sacks: works i feel like it's a category that doesn't make any sense say more i mean that well i mean explain it to people what's happening i don't really understand how it makes sense for lenders or for

SPEAKER_09: founders to be honest i think the whole industry doesn't make any sense for founders i don't like it because the money has to be paid back right it's debt so founders take in this venture debt thinking like it's an equity round but without dilution with some warrants and they don't realize well wait a second we got to pay this back in a year or a year and a half out of the next round they do but that creates an overhang on the next round because the new vcs coming in they want their money to go into the company not paying off a bank so it actually makes the next round less attractive the other thing about it is that the lender is not getting an equity reward so they don't want to take equity risk they may be getting a nice you know coupon they might be getting nine percent or something like that which sounds high for debt but they're not taking true equity risk in the company so the last thing they want to do is be your last six months of runway right they want to be your first six months of runway and then and then get paid off on the back end and i think a lot of founders think oh well i'll take this money and it'll extend my runway from 18 months to two years but what will happen in that last six months is all of a sudden the bank will come to you and say no no no like you have this or that material adverse condition it's called a mac out and there's all these like terms that founders don't understand because it's highly legal covenants and so all of a sudden the founders find themselves with a lot less flexibility in that last six months to a year either a covenant gets

SPEAKER_112: triggered that makes them pay back the money immediately or their business flexibility goes way down because they're consulting with their bank about everything all of this is coming home to roost right now i think it's a terrible deal for founders and i think that even for the lenders i mean i guess

SPEAKER_09: i assume that these banks know their business better than i do but but i i think that the reason i don't trust it as a category from you know from a lender point of view or from like an investor point of view is that all the data about defaults over the last five to ten years happened in this free-flowing zero interest rate environment and so the startup mortality rates were artificially low because it's so easy to raise so yeah venture debt makes sense in an environment in which founders are generally able to raise the next round and then pay back the venture debt but let's say that that that tweet storm you you mentioned jason can you bring that back on the screen i actually think this tweet storm is basically correct is you know i've referred to on this show before that i think one of the things that built up during this bubble is latent startup mortality so many startups that should have died from not being able to raise next round lived because they're able to raise money and what this tweet storm is predicting is that the second half of 2023 and then 24 you're gonna have a huge crunch where all these companies have to go out and raise they've been waiting so they're all gonna get to the point where their cash is so low they have to go out and raise and now all of a sudden they're gonna be confronted with the new market conditions wonder how many of them have venture debt as an overhang and those ones yeah and they're gonna find they have less runway than they thought because again those banks you know they are going to try and collect the debt before the start runs out of money not you know when it runs out of catch two falling knives yeah exactly so so look i just wonder what i what i don't trust is whether the the return models on venture debt that were created over the last five to ten years will be a good predictor of what the returns will be in the next

SPEAKER_49: five ten years when a lot of the mortality that should have happened in the past now happens in

SPEAKER_00: the future well i mean then and sax correct me if i'm wrong here but i'm also starting to see really gnarly term sheets people foreclosing on businesses people offering like literally had a term sheet come in like we're gonna uh forgive the last note and take this business over for a dollar and everybody gets wiped out the amount of bad feelings that you have to go through even if the there is a core business to freebrook's point earlier hey they raised 100 million but there's a 50 million dollar business in here that people would love to invest in who wants to go through the hand-wringing the negotiation the toxicity of a recap it's an extremely hard process to go through are you going through any recaps right now sax and what is the what is the approach of the firm in terms of dealing with these kind of

SPEAKER_68: situations do you even want to start that discussion up or is it too painful well we're a new company not

SPEAKER_09: one we're not we're not at the i don't think for most of our companies we're at the recap or restructuring stage i mean i'm talking about the ones that aren't going well people still have

SPEAKER_112: a fair amount of cash in the bank and we've been beating the drums for literally what about new

SPEAKER_68: opportunities a new opportunity comes to you it's one of these overhang companies that wants to

SPEAKER_28: restructure would you even engage that or is it just too hard i looked at seven at the end of last

SPEAKER_34: year and i tried to reprice three of them and every single one was able to get a convert done away from us yeah so i mean yeah we tried to find a market clearing price for this equity but nobody wants

Chamath Palihapitiya: it to david's point because there's too much money on the sideline and people are willing to give them a lifeline that doesn't force them to come to hard terms with what the reality of the moment is

SPEAKER_09: yeah i agree with that we're not quite there yet and and i think the the reason why that that tweet you

SPEAKER_112: posted got some traction is it's saying listen the crunch is going to happen second half of 2023 and 2024 that's where you're going to see the down rounds that's where you're going to see the restructuring the recaps and all the rest of it and um look i'm sure like every vc firm is going to

SPEAKER_13: be a player in that but yeah it's going to be a lot of miserable work this is when you're going to

SPEAKER_00: founders and we're going to see people's true colors when when when you have to recap a company

SPEAKER_28: and yeah this is when you can really start to see how crappy it was in 2003 to be here remember 2003

SPEAKER_209: painful oh my god oh my god i found some yeah there was are you lucky to raise 500k on a three

SPEAKER_28: million dollar oh my god like 2004 like what a brutal year yeah there's gonna be a lot of that i think the

SPEAKER_09: next 18 months or let's say the next two years there's gonna be pretty rough for a lot of companies and it's just that they didn't cut enough i mean we've been beating on the drums for a year for companies to lengthen their runway and some did to some extent but many didn't do enough and they're gonna get caught in this crunch can we just go to that chart that brad put out i think that what a lot of founders don't quite understand still is that things are just never going back to 2021 i think a lot of founders listening to the top of the show where we're talking about inflation is under control they see the market rally facebook's up 25 they may be thinking okay we just have to weather the storm for six months or a year and then everything's back to normal and i think what's important to understand is that the market did bottom out about a month ago and is up pretty nicely if you see here this is the sas index it's the median enterprise value divided by next 12 months revenue and it was really beaten down about at the end of the year at the end of last year coming into this year you were yeah it was like it was like four to five x multiples of of next 12 months revenue for sas companies that's all the way up to 6.1 now so you're talking about 20 to 50 rally for a lot of companies which is huge we're still below the long-term median which is just under eight okay but what people need to understand is that even if we revert all the way to the mean of eight which i think at some point we will that's still well below the bubble of 21 where they got to

SPEAKER_112: 16. so even if things continue to inflate valuations will still never quite be where they were in 2021

SPEAKER_214: and if you think it's getting back to 12 or 16 it's not happening for high growth companies

SPEAKER_112: for high growth companies in 2021 you were in the public markets you were seeing multiples of 30 to 35 times now those companies are maybe at 8 to 10 or 12. i think the reliable way that we can look at

SPEAKER_34: this for the future is that we're never going to see these kinds of multiples again unless rates are

Chamath Palihapitiya: zero and all kinds of tourist capital need to find a home to escape zero percent returns in every other asset class but if even the safest asset class now will give you three and a half four percent this is probably the new normal for quite a long time and we're going to be back in that early 2000s

SPEAKER_212: kind of mindset which takes a lot of hard work to build value around we talked about the sort of

SPEAKER_09: whipsaw economy and and there's a lot of mixed inflation data i think founders need to understand that there's a bifurcation what's happening in the tech ecosystem is not necessarily what's happening in the overall economy the tech ecosystem is clearly going through a reset and a recession job cuts are now the rule valuations are much lower whereas in the overall economy we saw a job support today of over 500 000 new jobs so the fact of the matter is that even if the overall economy avoids a recession that doesn't mean that things are just going to bounce back tech depression slash recession best case is recession for tech is a boom bust cycle and we had a phenomenal yeah 10 years of boom now we're in a bust and so i would just like tell founders you know look it's good if we have a soft landing in the economy i wouldn't assume that that's going to happen i still think there's a really good chance of recession later this year but it almost doesn't matter for you what matters is your business and the capital availability for startups which is fundamentally different and will remain different

SPEAKER_00: than it was in 2021 freeberg you were talking in the chat about adani enterprises and uh hindenburg doing this short research and publishing it stock has just absolutely gotten clobbered they were trading at uh gosh 4100 was the 52-week high and this thing has just cratered in the last five days

SPEAKER_60: i mean i think explain what's going on here well i mean the story that the conversation i thought

SPEAKER_55: it would be interesting for us to have is the role that these short seller research analysts play in driving efficient markets by identifying perhaps things that the market broadly is missing particularly given that a few weeks ago we were all kind of talking about the ftx debacle and how no one was doing their diligence and no one was digging in and no one was kind of revealing publicly what was going on inside of that business that ultimately caused significant losses you know the claims made by hindenburg is that this company adani which is founded and run by a guy named gautam adani he started the company like i think 30 35 years ago and he's built this thing into this you know the sprawling empire as people would say where he owns ports he owns mining companies he owns energy transmission businesses he's got a whole green energy business and he's taken a bunch of these companies and he's floated them publicly so they're all kind of publicly traded there's some degree of interrelatedness between all these businesses it reminds me a lot of i don't know if any of you guys remember aiki batista out of brazil you guys remember this guy where you know he kind of built the sprawling empire very kind of broadly diversified industrial conglomerate with you know lots of different kind of segments and used a lot of leverage a lot of debt to grow the business and a lot of interrelated inter-party transactions and ultimately the whole thing kind of came crashing down and that this adani business it's super technical and super complicated all the kind of accounting shenanigans that hindenburg is claiming has been going on and capital markets shenanigans that they're claiming have been going on with this business but their kind of report which i think is like 400 pages long has caused the response was 400 pages their response was long too yeah and then the market shrugged off the response that he put out didn't really care and they kept selling the stocks off so it's like seven or eight publicly traded companies all of which are just getting decimated look i don't have any strong opinion on this business i you know i kind of skim through the thing but you know it really made me question like how such a big call it accounting or capital markets

SPEAKER_143: fraud if it really is that can go on and how much of a role these sorts of players play in the market and whether you guys think that this is a good thing in the market to have these short seller reporters out there you know doing this analysis publishing it jason by the way you called out nicola nicola the the electric car company as you know hindenburg put out that nicola report stock tanked right they claimed it was all fraud etc and then the thing got destroyed trevor milton got convicted again right and so i mean i guess do you guys think that these guys have a have a positive role net net in the market in kind of identifying and calling out this stuff because we all have friends that are on the wrong side of short sellers and they complain about it and it can be really difficult to

SPEAKER_04: grow and build a business when people elon had these guys literally claiming he was running a fraud

SPEAKER_38: for years and years and it was an intense amount of scrutiny because when the trap when the stock was

Chamath Palihapitiya: less trafficked in when we were in it in 2015 and 16 and 17 that was the constant refrain and elon was constantly batting back folks like this who would make claims and the way that these guys are allowed to operate is because they use the first amendment and say we have the right to say this stuff

SPEAKER_38: i think that shorting falls into two buckets one is you use it as a hedging instrument so when we talk

Chamath Palihapitiya: about spread trades like long google short facebook or long facebook short google you should be allowed to short i think that that's a very reasonable thing to do i think the the question is if you were on the inside of a company and you say xyz is happening for example trevor milton and it causes the stock to go up and it turns out to be fraudulent he's held accountable the question is should there be the same responsibility for people on the outside who if they have enough distribution can say the exact opposite of xyz is happening in this case xyz is not happening which then causes the stock to go down because what the business model of these short sellers is write a document it looks very polished and very credible put on some positions then put the document out if the stock

SPEAKER_38: goes down you close it out in my opinion i think that short sellers are a really important part of a well-functioning market or the ability to short but what i would like to do is take an extra step

Chamath Palihapitiya: which is you should hold these folks accountable the same way you'd hold an insider accountable which is almost to the effect of like when you put out the screed if you make money from it it should

SPEAKER_38: sit in escrow and the sec should actually adjudicate whether it's true or not so in the case of hindenburg and nicola they shorted the stock they put out a report it turned out they were right all that money is completely well earned now what if this adani thing turns out to be not true

Chamath Palihapitiya: or true nobody knows right now except 50 of the market cap has already been wiped out so that's where things i think are are in a bit of a gray area the last thing i'll say is that

SPEAKER_38: if you look at in the developing world there's a very gray line between some of the leading entrepreneurs and these governments because these entrepreneurs are doing the work of some of these governments whether it's aiki batista in brazil in one moment right around natural resources or adani and ambani in india or a lot of the people that made a lot of money in china or the people that are

Chamath Palihapitiya: making money in in developing markets turkey russia etc the government uses very talented entrepreneurs to go and concentrate capital to develop infrastructure progress we did that in america in the 1800s as well so that's where i think you know you have to also balance it because his response was basically like this is an attack on india and in a way you can see where he's coming from right because he's building ports and roads and bridges and he's like without this stuff how is india supposed to even exist in the 21st century that's a reasonable claim so i agree with you freebrook i don't know whether the report is right or not but this extra step of actually having the sec actually tell us what the answer is i think would be a very important improvement to how this kind

David Friedberg: of stuff works the other improvement that the sec has been proposing in rule 13f-2 is that

SPEAKER_219: people would need to disclose their short positions right this proposed rule would require

SPEAKER_00: institutional investment managers i'm reading from the sec website managers exercising investment discretion over short positions meeting specific specified thresholds to report on the proposed form sho information related to end of month short positions and certain daily activity affecting the

SPEAKER_55: short positions that should absolutely pass the commission would aggregate the resulting data by

SPEAKER_25: security thereby maintain thereby maintaining confidentially of the reporting managers yeah and

SPEAKER_00: publicly deciding the data to all investors this new data would supplement the short sale data i think this

SPEAKER_55: relates to over lending of stock right i mean this is less about like who's doing what and it's much more about are we kind of creating critical fail points in the system by seeing over leverage and

SPEAKER_00: over lending in certain well there should also be some rules about the spreading of fear uncertainty and doubt that fud that happened with tesla q i mean paradoxically you know thousands of

SPEAKER_94: no but people that but that's anonymous accounts you know that's that's an example of people essentially lying

Chamath Palihapitiya: in public yes try to get the stock to move and tesla's not a fraud that's a real company i mean they were waiting car of the year while this was going on but there was a real human cost to that company right to employees that got spooked to partners that may have gotten spooked the pressure you know we saw this the pressure on elon in those periods of time and he was he was like on the knife's edge where there was the potential where the company may not have been able to finance its cash flow needs because of those tesla q guys and so it's not to say that the tesla q guys can't say it but they should be forced at some level to prove it if you can create crazy stuff i posted a link by the way for anybody that's interested in reading this there's a person uh called carson block who's being investigated yes because he may have pushed the boundaries of how short sellers do this it's a really fascinating read in the atlantic for anybody who wants to read it but this is sort of where the short selling thing can a little bit go awry and it's the title of this is the man who moves markets and it's it's quite a quite a really interesting read if you're interested in

SPEAKER_103: in how all of this stuff works all right everybody that's the all in podcast for february 3rd and 4th for sacks friedberg and chamath i'm jake out of the world's greatest moderator we'll see you next

SPEAKER_252: we love you boys bye-bye